Startegic Management Analysis of Engro Foods

STRATEGIC MANAGEMENT ANALYSIS OF

Compiled By: Tanveer M Malik (17122) Atif Abbas Faizan Puri - 13368 Mahesh Submitted To: Mr. Ather Qadeer

1

STRATEGIC MANAGEMENT ANALYSIS OF

ACKNOWLEDGEMENT

Firstly we would thank The Almighty Allah for giving us the opportunity and the resources to be able to do something productive with our lives. Without His blessings we would not have been able to come as far as we have. Then our sincere thanks to our course instructor Mr. ATHER QADEER for helping us throughout this report. His guidelines have been very useful for us in preparing this report. He helped us find new ways of being innovative and creative. This report would not have been possible without his cooperation and continuous direction. We would also like to thank Mr. Farrukh, Regional Sales Officer at ENGRO Foods who spare sometime for us so that we could conduct the interviews with him. It is true that this response in the interview have been very helpful. Last but not the least we would like to thank our families for their incessant support and approval.

2

STRATEGIC MANAGEMENT ANALYSIS OF

Executive Summary The report at hand provides useful insight about Engro Pakistan Ltd, a private fertilizer firm that keeps about 22 % of market share in the milk food industry Pakistan. Established in 2005, a 100% owned subsidiary –First investment of dairy plant Processed milk market is growing at approx. 20% per annum Olper’s achieved peak market shares of 12.3% within 6 months of launch Other products launched –Olper’s Cream, Olwell –High Calcium Low Fat Milk (Premium Brand) Plans to expand product portfolio Milk processing capacity to increase by 200% to 200 million liters annually Will become the only company in Pakistan covering the entire milk catchments area Already has the second largest chilled milk collection system in the country Distribution network to double from 58 towns to 119 towns by the end of 2007JV with global food major in advanced stage of negotiation Forces in the external environment that affect company’s performance are, political, economic, social and technological whereas company-specific external forces are Major Players in the food Industry, which are ten in number; Nestle being the leader with 41 % market share. Typical packed milk consumers are the children. Therefore, Engrofoods has a large number of consumers throughout the country.

After the introduction The EFL mission and vision statement, External and Internal audit Steeple analysis, Situational analysis (SWOT analysis), CPM, IFE & EFE Matrix. BCG matrix and at the end FINANCIAL RATIO ANALYSIS of the company has also been done. The company core competencies also discussed. Finally, certain recommendations are also given at the end of the report.

3

STRATEGIC MANAGEMENT ANALYSIS OF

About Engro Foods: Engro Foods Limited was officially launched as a fully owned subsidiary of Engro in 2004. Engro foods is subsidiary of Engro Chemical Pvt. Ltd. which is one of the most reputed enterprises in Pakistan with more than 40 years of diversified business operations in the areas of fertilizer and chemicals. Engro Chemicals, formerly known as Exxon, was taken over by the employees and reamed Engro. Since then, it has diversified into many fields owning and operating subsidiaries like Engro Asahi, Engro Vopak, Engro Pak tank, Engro Chemicals and Engro Foods. Engro Foods started its business operations in March 2006 and it hasn’t looked back ever since its inception. Within a very short span of 6 years, it has become the house of five quality dairy milk brands: Olpers Milk, Tarang, Olwell, Dairy Omung and Olpers cream. It has also entered into the segments of beverages and Ice cream with brands like Olfrute and Omore. With an acquisition of Al Safa – a fast growing and established Halal meat brand – Engro Foods is now venturing into North American market starting from Halal Foods category. The new organization, Engro Foods Canada Ltd. with a subsidiary Engro Foods USA, LLC, intends to aggressively grow the business in this market. Engro Corporation is one of the leading Pakistani business conglomerates with stakes in the fertilizer, food, power generation, petrochemicals, automation and terminal storage industries. Having had undergone an employee led buyout in 1992 it has expanded phenomenal in the past two decades. As a holding company its subsidiaries include: • • • • • •

Engro Engro Engro Engro Engro Engro

Fertilizers Limited Foods Limited Eximp Private Limited PowerGen Limited Polymers and Chemicals Limited Vopak Limited

The 21st century for Engro Corporation has thus far proved to be the most successful era in the total life of Engro, from then onwards Engro has only faced success and never looked back, 2003 was the year of the establishment of Engro EXIMP, after which in 2005 Engro decided to diversify their business more by venturing into the food business by establishing Engro Foods Limited, which is now experiencing a great success and competing now with international brands like Nestlé and Wall's Ice Cream. Engro also ventured into the power generation business by setting up Engro Energy Limited in 2006, which later on was renamed as "Engro Powergen Limited" in 2008. It was established with the basic aim to play Engro's part to tackle the energy crisis in the country. In year 2007 Engro Asahi polymer divested its share in joint venture with Mitsubishi and the company renamed as Engro Polymer and Chemicals Limited. In 2010, keeping in view the immense diversification of Engro Chemical Pakistan Limited, it was decided to rename the company as Engro Corporation as the holding company. Our focus is on one industry being Engro Foods limited

Mission Statement: 4

STRATEGIC MANAGEMENT ANALYSIS OF

Engro is progressing day by day because they have a vision and mission that keeps the motivated and keeps them going. Their mission as they describe as:

“Our mission is two fold, to help farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend. To create wealth by building new businesses based on company and country strengths in petrochemicals, information technology, infrastructure, food and other agriculture sectors.”

And further describing the adoption fashion they say,” In pursuing the mission we shall at all times be guided in our conduct and decision making by our core values.”

Vision Statement: “To be the premier Pakistani enterprise with a global reach, passionately pursuing value creation for all stakeholders”.

Diversified Portfolio of Engro Pakistan:

5

STRATEGIC MANAGEMENT ANALYSIS OF

Fertilizer Business Agriculture accounts for 25% of GDP and 45% of employment in Pakistan Second largest Urea producer of Pakistan .Capacity975 KT/A Market share20% Second highest phosphates sales (~400KT/A) –Market Share 23% ECPL’s Margins are by far the best in the industry. Zarkhez (NPK) Market leader -Capacity 160 KT/A –Market Share 95% Urea shortage expected to grow to 1.2 million tons/annum by 2010. World’s largest single-train Urea plant of 1.3 million tons being setup at a cost of US$ 950 million. On commencement of operations in mid 2010, cash fixed costs of the new plant will be a third of the existing plant; scale & brown field synergies Gas consumption at the new plant will be 15% less than the existing plant. Engro’s Daharki complex will become the world’s fifth largest Urea production site; 2.28 million tons, 3 plants.

Engro Energy Limited Established in 2006-100% owned subsidiary Pakistan is facing growing energy deficit -Energy consumption has been growing at 7% per annum Setting up a 220 MW gas based power plant at a cost of $220 million with commercial operation in 2009 Short-listed along with 3othercompanies for privatization of Jamshoro Power Company Engro Innovative Automation Limited Acquired majority stake (51%) in a knowledge based company Innovative Engineering & Automation Ltd in 2003 Market Leader in domestic Industrial Automation –Honeywell distributor in Pakistan Expanding internationally to synergize, and benefit from lower costs at home and higher demand abroad Now operating in Dubai, UAE which contributes 25% of revenue and half of the profit Company’s first IP product “iboiler”launched internationally in 2006 Acquired an automation company in the US in Dec. 2006; mandated to develop outsourcing opportunities

Engro Asahi Polymer &Chemicals. Limited Established in 1999. 80-20 JV with Mitsubishi Corp. Pakistan’s only PVC manufacturing plant; facing buoyant domestic demand since 2006 Successfully placed 22% of sales in diverse export markets from Australia to East Africa in prior years (2004 –2005) Expansion and back integration underway –imported ethylene + new caustic soda plant; EDC/VCM/PVC

Engro Food Limited. 6

STRATEGIC MANAGEMENT ANALYSIS OF

Engro Foods Limited was officially launched as a fully owned subsidiary of Engro in 2004. Using dairy as a stepping stone to enter into the food business, the Company has established state-of-the-art processing units in Sukkur and Sahiwal, along with an ice cream production facility in Sahiwal. Top quality brands like Olper’s, Olwell, Tarang, Omore and Owsum have been successfully launched under the helm of Company’s dairy products. To support these brands and their highest standards of quality, Engro Foods has invested heavily in milk processing and milk collection infrastructure. Processed milk market is growing at approx. 20% per annum Olpers achieved peak market shares of 12.3% within 6 months of launch Other products launched -Olpers Cream, Olwell –High Calcium Low Fat Milk (Premium Brand) Plans to expand product portfolio Milk processing capacity to increase by 200% to 200 million liters annually Will become the only company in Pakistan covering the entire milk catchments area Already has the second largest chilled milk collection system in the country Distribution network to double from 58 towns to 119 towns by the end of 2007JV with global food major in advanced stage of negotiation

Food Industry in Pakistan: The corporate food industry is in a state of growth, with the increase in average revenue being in excess of 25 per cent last year. This growth is based on market penetration of largely urban areas and some export markets. With deeper penetration countrywide, the sector has enormous potential for growth and can contribute more than the current 20 per cent of manufacturing GDP. The companies chosen for consideration include Clover Pakistan, Engro Foods, National Foods, and Unilever Foods. The food and its allied products industry is considered Pakistan’s largest industry, and is believed to account for 27 percent of its value-added production. Trade sources estimate the sector's total value of production is over rs.46 billion (rs.58.00 equal usd 1.00 at the current exchange rate). Pakistan’s food industry produces cooking oils, hydrogenated vegetable oils, sugar, flour, dairy products such as milk, butter, yogurt, cheese and ice-cream, biscuits, breads and confectionery, fruit juices and fruit juice drinks, carbonated beverages, snack foods based on rice, potatoes, corn and pulses, processed chicken, jams, jellies, squashes, sauces, pickles, and some cereals and canned fruits. The fish, meat, fruit and vegetable sectors are underdeveloped partly for lack of adequate infrastructure, including storage and transportation facilities. Government policies and plans are expected to greatly increase the development of seafood’s industry. Development and implementation of milk standards is also essential to define milk price based on quality. Dairy science and technology education universities also need to support industry in dairy breeding, nutrition, industrial management and product quality. Presently no under-graduate program is available in the country to support this sector. Presently, Pakistan has only a few scholars in prime principles of dairy science including animal breeding and genetics, dairy nutrition, dairy management, and dairy technology to support and develop dairy

7

STRATEGIC MANAGEMENT ANALYSIS OF industry. It is essential because the veterinarian could only provide support to the animal industry developed on the animal production science principles. Animal or dairy production science is altogether a different subject than that of veterinary education. In conclusion, development of dairy cooperates, restructuring of Extension; research and educational institutions could perk up rural oriented dairy sector to market oriented dairy industry that guaranteed food security social and economic growth in Pakistan.

Engro Foods: Engro Foods Limited (EFL) was established in 2005, and is the newest entrant in our analysis. The company’s first venture was in the dairy market, with milk products like Olpers and Tarang, later moving into milk and fruit beverages, and the ice cream market. The company further leapt into the halal foods industry, by acquiring a leading meat brand in North America, Al Safa. EFL has displayed growth consistently, with revenue growth of 53 per cent in 2011, and growth clocked in at 31 per cent till the third quarter of 2012. The company turned its first Profit After Tax in 2010, and has recorded average annual PAT growth in excess of 100 per cent since then. PAT grew more than 400 per cent in 2011, and has already grown 142 per cent by the third quarter of 2012. Gross Profit Margin has grown consistently, from 7.19 per cent in 2007 to 22.20 per cent in 2012, while PAT margin has grown from a loss of -17.5 per cent in 2007 to 5.51 per cent in 2012. While the company is highly leveraged, Long Term Debt to Equity stands at 43.7 per cent.

Our Brands:

8

STRATEGIC MANAGEMENT ANALYSIS OF

Our Affiliates

Core Values: o o o o o o o o o

Leadership Innovation Diversity and International focus Quality and continuous Improvement Candid and open communications Individual growth and development Enthusiastic pursuit of profit Ethics and integrity Safety, Health and Environment

Vision: "Our vision is to become a fast expanding mega foods company. To achieve our vision, the company will initially focus on dairy by investing a substantial amount in plant, milk collection capability and marketing. We are making concrete efforts to expand in and beyond Pakistan; through strategic international alliances, to eventually become global."

Mission: (Our mission is twofold) “To help farmers maximize their farm produce by providing quality plant nutrients and technical services upon which they can depend. To create wealth by building new businesses based on company and country strengths in Petrochemicals, Information Technology, Infrastructure and other Agricultural sectors. In pursuing the mission we shall at all time be guided in our conduct and decision making by our Core Values.”

Objective and goals

9

STRATEGIC MANAGEMENT ANALYSIS OF Engrofoods main objectives are to supply everyone their favorite olpers Milk and to satisfy the consumer needs and wants. Engrofoods second main objectives are to provide profit to the shareholders and increase the market share. EFL dreams to be BIG. We want to be a major player in the food industry which is also evident in our vision, "Elevating Consumer Delight Worldwide". EFL wants to challenge the industry norms and surprise whoever has eyes on EFL.

ANALYSIS OF MISSION Component of mission statement Customers Products or services Markets Technology Concern for survival, growth, and profitability Philosophy Self-concept Concern for public image Concern for employees

Description Who are the firm’s customers? What are the firm’s major products? Geographically, where does the firm compete? Is the firm technologically current? Is the firm committed to growth and financial soundness? What are the basic beliefs, values, aspirations, and ethical priorities of the firm? What is the firm’s distinctive competence or major competitive advantage? Is the firm responsive to social, community, and environmental concerns? Are employees a valuable asset of the firm?

Addressed or not? yes yes yes no yes yes yes no no

STEEPLE Analysis No organization exists in a vacuum; the environment within which the firm has to operate will affect the way that strategy is both planned and carried out and changes in the environment is also the most likely reason for making changes in the strategy. Changes in the environment are also the most likely cause of failure of strategic plans. The most carefully calculated strategy would be able to drive the market in the favor of the organization and will maneuver the external environment in the best possible way. Engro Foods like all the organizations they also have to face such kind of 10

STRATEGIC MANAGEMENT ANALYSIS OF environment which is very dynamic. Being in the market as a challenger they have to face all the external factors and have to cope up with them accordingly

S - Social Factors Engro food has helped to bring about a change in life style of the Pakistani People by introducing UHT Milk, as the literacy rate is improving and it is resulting in a better awareness of the olpers and Tarang UHT treated milk and is helping them improve their sales and Milk with its basic benefits has helped improve the image and more usage has been seen in the past years. Special awareness Campaigns can also be launched and can help portray a better image of the product in front of the customers. The attitudes of the people are also changing with the passage of time so as a result the usage of open gawala milk is changing and people are opting out the usage of standardized packed milk.

T - Technological Factor The type of the technology available within the industry states the competitive environment because creative use of new technology is what often gives firm there competitive advantage. This environment does not change that much quickly but the changes that come are strong enough that can change the way the industry is currently running. Haleeb production process uses UHT (Ultra High Treatment) technology. Engro food administrators claim that their plant adopted the latest technology for milk processing and thus it had an edge over other around twenty plants in competition including Haleeb, Milkpak as all other plants were based on obsolete European technology. The idea behind UHT investment was to provide consumers with the best quality of packaged dairy and food products that no other company can produce.

E - Economical Factor Engro Foods is strongly affected by both the Economic and the Demographic environment around and have to keep on taking different steps to respond accordingly. There is no sales tax on the milk. Hence it is a real plus point. Material supply and shortages are faced by the company for both 11

STRATEGIC MANAGEMENT ANALYSIS OF Packaging and for the product it, as milk’s production is seasonal and keeps fluctuating and adequate steps are required to be taken in order to keep it working smoothly. Haleeb also don’t charge interest on its products which also makes a huge difference economically.

E - Environmental Factor As, the environment always effect the way strategies are being carried out and implemented. Engro Foods like all the organizations they also have to face such kind of environment which is very dynamic. Being in the market as a challenger they have to face all the external factors and have to cope up with them accordingly. Haleeb have the strategies to positively engage the staff in work and boost up their moral. Engro food has a friendly environmental culture within the organization to make their employees comfortable and to deal with the external problems. There are few seasons in which the availability of milk reduces that effect the production of milk and left Engro food with fluctuated sales.

P - Political Factor Engro food also abides by the rules formed by the Government and set their strategies that are according to the laws and legislations of the Government they are working under. Tetra Pack (brick pack), that was for the first time that milk came in that form soon followed by the Nestlé’s Milk Pak which as a multinational rocked the UHT Milk industry of Pakistan. They are not actually bound under any sort of trade agreements. As far as the employment laws are concerned Engro food abides to laws set by the government for trade policies, government policies and completes its responsibilities in a better manner.

L - Legal Factor Engro foods always stand by the rules and legal conditions imposed by the Government and set their strategies that are according to the employment laws and legislations of the Government they are working under. Engro food always keeps its department updated about what is happening in the sector or milk industry, and that will help them to make their strategies accordingly. Engro foods

12

STRATEGIC MANAGEMENT ANALYSIS OF have the legal laws like, Minimum wage, working time, Food stuffs, Engro foods don’t believe in Under 18 working, Occupational/ industrial Training, Environmental regulations, Consumer protection Industry-specific regulations etc.

E - Ethical Factor Engro foods are well renowned company operating in the milk industry since 2002. And the reason for this is importantly their ethical values. They don’t sale on credit or on interest because they consider it unethical and not according to the law of our religion.

ii.

PORTERS FIVE FORCES MODEL

Porter Five Forces Model:

13

STRATEGIC MANAGEMENT ANALYSIS OF

Bargaining power of suppliers: Raw milk is a standard commodity and it can be available easily. There is large number of milkmen and if one refuses to supply, then the company can buy it from others. Also, the bargaining power of suppliers is low because the company buys in large quantity and so supplier are not left with option of bargaining. Availability of substitutes: This is quite straight forward and simple as there are large number of substitutes in the food industry. Almost every company is almost producing the same or similar products like the biggest example is NESTLE. Competitive rivalry: The food industry is highly competitive. There are large numbers of competitors with almost the similar products. The companies with best customer service, greater efficiency and quality will win out in this game as the best players. At this point in time NESTLE is the biggest competitor but another player that is GOODMILK has entered in the game. In the long run I suppose more conglomerations between companies rather than spending or investing on advertisement in the initial stages.

Threat of new entrants: Entering in food industry requires large amount of investment therefore companies like Engro are fearful of being squeezed out. But still competition is fearful from good milk and Nesvita. Competing in new industries require large investment and especially in packaged food business large amount of financial, human, technical and marketing resources will be needed. Also, the new

14

STRATEGIC MANAGEMENT ANALYSIS OF entrants may have a barrier of entering with economies of scale or either to have a cost disadvantage. Bargaining power of buyers: The individuals have some power because of competition by Haleeb and Goodmilk. Also large clients of Engro like airlines and retailers they have much bargaining power. But Engro has made its place by its backward integration and superior customer services and quality.

SWOT Analysis Strength: Engro’s back. Olper’s is a brand of ENGRO foods. This means that consumers can relate their former image of ENGRO foods to Olper’s. ENGRO is a well established brand name in Fertilizer, IT and infrastructure business. The brand is well known so customers will automatically have a brand association with Olper’s and see it as a premium quality product. ENGRO is world renowned so it can easily attract foreign investors in backing it against other competitors such as Nestle. ENGRO foods can easily afford research and development costs for Olper’s have in order to introduce new products. It can also distribute the brand through better channels because of its long term relationship with distributors in the agriculture sector. PR with farmers ENGRO has been interacting with the farmers for fertilizers and has gained quite a good reputation over the years. It has led to a strong bond and long term relationship with the farmers who are willing to supply milk to the company. This is an added advantage and strength for the company

because it will never be short of milk production. The farmers also won’t have to look elsewhere to sell their milk. Positive response from customers

15

STRATEGIC MANAGEMENT ANALYSIS OF In first year, EFL crossed 1.4 billion sales figure which shows customers’ satisfaction upon EFL’s products. 4. Its taste, quality proposition and world-class quality proposition system. Strong consumer & product research Olper’s done a strong consumer & product research before and after launching the product. This has provided them the perfect launching pad to eventually emerge as a global player in the food industry. To develop its future portfolios, EFL has hired various global research partners like AC Nielsen, Mindshare, JWT Asiatic and MARS marketing and advertising agencies. Third-Generation Plant EFL only, has the third-generation UHT milk plant in the country. EFL plant is the only plant in Pakistan that uses Bactofuge technology to virtually eliminate bacteria and ensure premium quality and hygiene. Moreover, it is also setting up another milk processing plant in Central Punjab (Sahiwal) with an investment of Rs. 2 billion (US $ 33 million). 

Worldwide fame of Engro.



Efficient milk collection system.



Keeping high quality standards.



Integrated distribution and warehousing facilities.



Successful related diversification.



Generic brand name of Olper’s



Large market share of Engro innovative and chemicals.



Having Good reputation in the market by strong brand name i.e. Engro

Weaknesses Olwell TVC Olwell ad which is based on Western life style, ENGRO foods brand management showed a man who put off his clothes & remain just in his undergarments, or half nude lady in a cat walk or men admiring the figures of a lady in mix gender health club. In this ad they are creating associations with the brand through the stripes, which is a highlight of Olwell packaging. Half naked people

16

STRATEGIC MANAGEMENT ANALYSIS OF have been shown with tattoos of the same stripes in order to show that they are loyal consumers of Olwell. Also, the talent, situations and locations connects well with the ad to give Olwell a premium positioning. The brilliant marketing people at ENGRO Foods failed to analyze is that the market they are targeted the ad on, is Pakistan, where practicing Muslims reside, who have strong religious beliefs. When making the ad, the brand managers were focused on, making an ad that should give the brand the most premium look and feel amongst the target consumers but on the other hand they were least bothered about the ethics, religious beliefs and cultural values. Owning Red Color The company has not owned the color red like Nestle has a green Milkpak; Haleeb has a blue carton etc. This may create problems because when a consumer enters a grocery shop, then he/she might have problems in recalling the brand because there is no color association attached to Olper’s. The company may need to find a suitable color in which to focus its upcoming marketing strategies. Low Quality Milk EFL is not having its own dairy farms; it largely collects loose milk from farmers & gwalas through its 40 milk collection centers, which sometimes is of low quality and impure because they add vegetable oil to milk to get higher prices. Packaging EFL is dependent upon Tetra Pak for the packaging of its entire dairy products. Tetra Pak is the only option available to Olper’s for packaging because it is having monopoly in the packaging sector in Pakistan. Due to this reason, Tetra Pak can charge them higher and it could increase the production costs. Milk collection & distribution costs EFL’s 34 out of 40 milk-collection centers are located in Punjab, where as its only milk processing facility is situated near Sukkur (Sindh). It increases the milk collection & distribution costs; and also increases the chances of milk getting spoiled because of increased traveling time. Narrow brand portfolio It has been more than a year now, when EFL launched its first dairy product, Olper’s Milk on March20, 2006. But EFL’s brand portfolio still consists of just 3 products i.e. Olper’s Milk, Olwell Milk and Olper’s Cream. Whereas its competitors like Nestle and Haleeb Foods have a much diversified line of dairy products. 

Unable to compete in price sensitive segment of UHT milk market.



Under-utilization of the capacity.



Unable to fulfill the demand of local powder milk market.



Not yet ISO certified

Opportunities Increased funding by Government

17

STRATEGIC MANAGEMENT ANALYSIS OF Government has decided to increase farmers’ funding. This is an opportunity for ENGRO foods because previously due to weather conditions and other reasons there was lots of wastage of milk but now that can be reduced as farmers will be better able to store milk for longer time periods. Increased consumption of PLM Competition may create opportunities for the company because each competitor in the milk industry wants to increase penetration of processed liquid milk and so they will create awareness for consumers through different advertising media. This will ensure the increase in the consumption of processed milk instead of lose milk and so will in turn lead to increase in sales for the company. Therefore there will be an opportunity for accelerated growth. Awareness Growing dissatisfaction with loose milk and increasing awareness about health and hygiene issues have led to increased processed milk consumption. Third largest producer of milk Pakistan is the Third largest producer of milk in the world with a total production of 32 billion liter of milk a year, whose value is more than that of the combined value of wheat and cotton, from a total herd size of 50 million milch animals (buffaloes and cows). Livestock accounts for 46.8 percent of agricultural value added and about 10.8 percent of the GDP. Milk is the largest commodity from the livestock sector accounting for 51 percent of the total value of the sector. Due to the steps taken by the government and private sector, country’s annual milk production is expected to grow at an additional 3 billion liters in the next few years. This is quite an opportunity for ENGRO foods as there is lot of growth in this part of the sector. 

Improving Economy



Population growth rate.



High urbanization rate.



High literacy rate.



Flexible government policies for food industry.



Have significant growth opportunities



Has sufficient capital to expand.



Has the potential to innovate and differentiate the company's products to sustain a competitive advantage



May merge with other global businesses to eliminate competitors.



Having Capable of expanding into other markets of the world

Threats 18

STRATEGIC MANAGEMENT ANALYSIS OF

Competition Competition may pose a threat because the company will have to maintain its leadership in an expanding market so that it doesn’t lose its market share to its competitors. For Olper’s it might be difficult to penetrate in a market where the loyalties exist for such brands as Nestle and Haleeb. These brands have been in the milk industry far too long and have left a mark in the minds of consumers in terms of quality. Competition seems to be getting tougher as a result of new players entering the dairy market. Perceptions and Price Differentials Consumers’ perceptions and price differentials can cause a threat for the company. It is important that Olper’s comes up to the expectations of the customers and fulfills its conformance quality that is the company meets its promised specifications. Consumer’s preferences change with time and prices might create certain barriers in terms of the profit margins for Olper’s. For example, lose milk is still cheaper than packaged milk and that is also one factor that people still prefer to buy lose milk. Has many major global competitors with its main one being Nestle Pakistan, Haleebfoods can be substituted by other milk producer made by its competitors. These competitors may develop marketing strategies to eliminate The Engrofoods Olpers. There may be an economic downturn in the business cycle.



High inflation rate.



Low purchasing power.



Decrease in GDP growth rate.



Increasing interest rates.



Decreasing investment.



Recessionary period in business cycle



Competition with Nestle, Engro Foods and the new entrants.



Engrofoods is currently facing are increase in Sales Tax

INDUSTRIAL SWOT ANALYSIS

19

STRATEGIC MANAGEMENT ANALYSIS OF

Strength 

Endowed with the very good breed of buffalos and cows



Highest per capita consumption of milk in Asia



Regular culling of less productive/unproductive animals



A high ratio of agricultural land to agricultural ratio



An emergence of commercial dairy farms on a large scale

Weaknesses 

Small and scattered animal holding



Prevalence of traditional raw milk marketing system



Poor quality of milk; lack of remunerative producer price for milk



Milk processing predominantly dependant on obsolete UHT technology



Mushrooming growth of cattle colonies in suburban areas; High cost of milk



Production; a long chain of middle men



Inadequate infrastructure and institutional facilities and support



Low utilization of installed capacity of dairy plants



Poor quality of animal health care and breeding services; lack of professional management

Opportunities 

Huge unsatisfied demand of milk and milk products.



Substantial scope for increasing milk production through improvement in the marketing system by ensuring a year round remunerative price to milk producers



Increase consumer awareness of healthy eating

Threats 

Unregulated imports of dairy products at cheap prices

20

STRATEGIC MANAGEMENT ANALYSIS OF 

Inadequate public and private investment in modernization of the sector

What is SWOT matrix? The concept of determining strengths, weaknesses, threats, and opportunities is the fundamental idea behind the SWOT model. To present the model in a more understandable way, scholars came up with so-called SWOT matrix. SWOT matrix is only a graphical representation of the SWOT framework.

The above is a schema of how SWOT works. You start at the top level and go down to details. When this is filled with content, it gets the shape of a matrix, such as Example below:

21

STRATEGIC MANAGEMENT ANALYSIS OF

SWOT Matrix & 4 Strategy Cells for Engrofoods. Strengths 1. Worldwide fame of Engro.

SUPER SWOT

2.

Efficient milk collection system.

3.

Keeping high quality standards.

4.

Integrated distribution and

Weaknesses 1. 2. 3.

warehousing facilities. 5.

Generic brand name of Olper’s

6.

Large market share of Engro

4.

Unable to compete in price sensitive segment of UHT milk market. Under-utilization of the capacity. Unable to fulfill the demand of local powder milk market. Not yet ISO certified

innovative and chemicals. 7. 8.

Having Good reputation in the market by strong brand name i.e. Engro Strong R&D

22

STRATEGIC MANAGEMENT ANALYSIS OF Opportunities 1. 2. 3. 4.

SO

WO

Increase production of quality milk to As per the increase demand of the milk EXTERNAL FACTOR ANALYSIS cater the unsatisfied demand(S2,O2,O7) they should fulfill the demand as EFL have the ability to expand.(W3,O8).

Population growth rate. High urbanization rate. For Engrofoods High literacy rate. They should increase their ANALYSIS exports(S1 They should make a strong distribution INTERNAL FACTOR Flexible government policies O7). system to cater to avail the full benefit of for food industry. the growing market.(W3,O2) For Engrofoods 5. Have significant growth They should cater the wide range of opportunities Key Strategic Factors unsatisfied Weight Rating Weighted Scoremarketing demand by improving their They should adopt affective 6. May merge with other global distribution networks. (S4 , O5) strategies for the promotion of their STRENGTHS Rating product.(W2,O1) Key Strategic Factors Weight Weighted Score businesses to eliminate Brand Image 0.08 4 0.32 competitors. 7. Having Growing Capable of expanding Sales 0.03 3 0.09 OPPORTUNITIES into other markets of the world Market Share 0.05 3 0.15 Threats Distribution Channel ST WT 0.08 4 0.32 Availability 0.1 4 0.4 1. Raw High Material inflation rate. Product Quality 0.07 3 0.21 Invest more on the dairy product line as The co-ordination between different 2. Low purchasing power. Market Capitalization 0.08 3 0.24 there is still a large chunk of the market departments of EFL should 0.08 4 0.32 be improved it 3. Decrease inCapacity GDP growth rate. which require modernization(S6,T5) 2 will lessen the bureaucratic cost and Diversification 0.07 0.14 4. IncreasingInnovation interest rates. 0.04 3 0.12 increase the efficiency of the company. 5. Decreasing investment. Exports 0.21 Introduce0.07 new technology for quality Customer Oriented 0.02 33 0.06 6. Recessionary period in business assurance and better productivity(S4,T7) Qualified 0.01 31 Haleeb Work Bottleforce 0.04 0.04 Engro must get 0.03 the ISO certification cycle R & D 0.05 4 0.2 as to beat their competitors(W4,T8) 7. Competition with Nestle, Engro Credit Policy 0.06 2 0.12 Foods and the new entrants. Business without Interest 0.02 3 0.06 Joint isVentures 0.06 3 0.18 8. Engrofoods currently facing Exporting 0.06 4 0.24 are increase in Sales Tax THREATS

WEAKNESSES

Local Company New Entrants Centralized Decisions Changing Season No Sales on Credit High Price Sales Tax Uncertain Economic & Suppliers Political Conditions Economic Conditions Market Demand Price Sensitive People Striker Terms And Gawala Milk Conditions Small Target Market Promotion Total Total

0.05 0.08 0.09 0.05 0.06 0.05 0.06 0.07 0.03 0.05 0.05 0.06 0.1 0.03 0.05 0.05 11

1 23 22 23 13 2 2 2 14 2 2

0.05 0.24 0.18 0.1 0.12 0.1 0.18 0.21 0.03 0.1 0.1 0.12 0.4 0.03 0.1 0.1 2.78 2.83

23

STRATEGIC MANAGEMENT ANALYSIS OF OLPERS

NESTLE

HALEEB

Critical Success Factors

Weight

Rating Score

Rating

Score

Rating

Score

1

Research & Development

0.08

3

0.24

3

0.24

4

0.32

2

Advertisement

0.09

3

0.24

4

0.36

3

0.27

3

Financial Position

0.09

3

0.27

3

0.27

3

0.27

4

Market Share

0.07

2

0.14

4

0.28

3

0.21

5

Product Quality

0.08

3

0.24

3

0.24

3

0.24

6

Price Competitiveness

0.11

3

0.33

3

0.33

2

0.22

7

Management

0.10

3

0.30

4

0.40

3

0.30

8

Global Expansion

0.08

3

0.24

4

0.32

3

0.24

9 10

Customer service Sales And Distribution Network

0.06

3

0.18

3

0.18

2

0.12

0.09

3

0.27

4

0.36

3

0.27

11

Production Capacity

0.07

2

0.14

3

0.21

4

0.28

12

Alliances Total

0.08

3

0.24

4

0.32

3

0.24

1.0

2.76

3.51

2.98

Competitive Profile Matrix (CPM)

FOR ENGROFOODS: REASONS

24

STRATEGIC MANAGEMENT ANALYSIS OF The IFE matrix for AFL is given above. Note that the strength for the company is Research and Development, Pakistan based and having a highest production capacity so got 4 rating. The major weaknesses are Price competitiveness customer service and planning for the future state of the AFL. The total weighted score of 2.76 indicates this large milk Production Company is above average in its overall internal strength. But it’s very close to average limit as well. So it really needs to improve its weaknesses and build its strength.

CORE COMPETENCIES & KEY SUCCESS FACTORS: There are several core competencies of EFL given below; 

EFL foods Pvt. Ltd has been able to build a good brand name in a number of years. There are several consumers who are loyal to the brand and do not shift to other brands. Building a good brand name is not easy. It takes years to build a brand image by providing the best quality to its consumers which Haleeb Foods have done. They have consistently delivered which provides a competitive advantage to the company of having a good name in the market.



EFL. Is only the recognizable food company which is doing business without interest, which means that they do not take loan or take advantage of the interest income which they can easily do? If they want loan and they cannot find anyway out they go for Islamic Financing like mudarba and musharka. It is their strength as majority of the people in Pakistan are Muslims and Muslims are advised to remain away from interest income.



EFL has one of the most modern plants which has the latest technology and has a high production capacity. They produce 80,000 liters of milk in a day which is not a small

amount of milk. They have an advantage of higher production as people are demanding more and more packed milk so they can meet the increasing demand easily.

25

STRATEGIC MANAGEMENT ANALYSIS OF 

HFL has one of the most extensive distribution networks across the nation. It has one of the best distributions if we compare it with other major players like nestle and all because EFL has over 600 distributors across Pakistan which enables them to deliver their products into far of small towns as well as villages. It is their major strength which is driving their revenues very quickly.

KEY SUCCESS FACTORS: 

Research & Development



Financial Position



Market Share



Product Quality



Price Competitiveness



Management



Global Expansion



Customer service



Network Sales And Distribution



Production Capacity



Alliances

COMPETITIVE ANALYSIS The strategic priorities of Nestle Pakistan are claimed to be focused on delivering shareholder value through the achievement of sustainable, capital efficient and profitable long-term growth. Improvements in profitability would be achieved with due respect to quality and safety standards at all times.

In line with the above objective, Nestle Pakistan aims at growing into a number one food company in Pakistan in the shortest possible time with the unique ability to meet the needs of consumers of

26

STRATEGIC MANAGEMENT ANALYSIS OF every age group - from infancy to old age, for nutrition and pleasure, through development of a large variety of food categories of products with highest quality. Nestle Pakistan envisions that the company should develop an extremely motivated and professionally trained work force, which would drive growth through innovation and renovation. Special training programs have been designed for employees at each level to keep up with and develop this vision. The study concludes that Nestle has a significantly high growth rate (36%) and has grown and developed at a high pace in short span of time. On the other hand Haleeb has a market share of 28%. And Engrofoods having 21% the major contributor toward this growth and development are human resource, marketing and sales departments. The major contributor is its appropriate strategy particularly its relationship with the social and environmental sectors. Perhaps this is the reason that it in spite of being a multi-national has been well accepted in Pakistani culture. There are ample chances of its survival in future. 

Keeping new players such as Olper’s, and the old ones like Haleeb, Nestle focused more on advertising.



Nestle have been experiencing a constant increase in cost with raw material contributing the larger part of this increase. Haleeb having their own suppliers so the raw material cost is bit low.



Nestle maintained its value of gross profit margin around or above 30% to ensure that it has a strong control over its costs, and the efficiency of production. But on the other hand, Haleeb faced a bit of down fall when Olpers introduced their campaign.

27

STRATEGIC MANAGEMENT ANALYSIS OF

Strategy adopted for Market growth Engro Foods are using different strategies at the same time to gain market share and to create sound image of the products and company in the minds of the customers. The company adopting following strategies: 1. Market Penetration (Olper and Omore) 2. Product Development (Olwell, Omang Lassi and Olfrute) 3.

Market Development (Targeting almost all regions in Pakistan)

BCG Matrix Model The BCG matrix or also called BCG model relates to marketing. The BCG model is a well-known portfolio management tool used in product life cycle theory. BCG matrix is often used to prioritize which products within company product mix get more funding and attention. The BCG matrix model is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. The BCG model is based on classification of products (and implicitly also company business units) into four categories based on combinations of market growth and market share relative to the largest competitor. In order to elaborate the BCG matrix, we have chose Engro foods limited. Though Engro has a number of other business in which it involve but in this report we have focused only in one business unit of Engro which is Engro foods limited. Engro foods have launched six major brands since 2004, year of establishment of Engro foods. In these six major brands five are dairy products. In year 2010, Engro has launched Olfrute which is a fresh juice product by this particular company. In this report, we have categorized all the six major brands of Engro foods into four categories of BCG matrix. The decision of this categorization has been made on the basis of two major things that are market share and the growth in the market.

28

STRATEGIC MANAGEMENT ANALYSIS OF

BCG MATRIX

Stars:

Question Mark:

Omore, Olfrute, Tarang, Dairy Omung,

Olpers light, Tarang dobala, Olpers cream

Cash Cows:

Dogs:

Olpers

Tarang Powder, Tarrka

Stars In the BCG matrix, We have placed two products in the star categories that are Omore andTarang as the growth rate of these two products are quite high as you can see in the table-1.Beside this the market share is also increasing. As both of the products are relatively new in the market as compared to its competitors and the market share is not so well but still in this shortage period this growth rate and the market share is incredible. There is a lot of potential in both of these products and company can increase its market share by massively investing in these two products. Investing Strategy must be used in order to constant the growth, the company must constantly invest in order to grow the current level of market share.

29

STRATEGIC MANAGEMENT ANALYSIS OF

Cash Cows Olper is one of the well renowned brands by Engro foods and this has lead to a drastic change in the diary industry of Pakistan. Before Olper, haleeb and milk pack had the monopoly in the tetra pack diary industry but after the olper success a lot of other brands like goodmilk, nurpur etc got enter into the market. Now the market of the Olper has a relatively high market share and the third largest milk producer in Pakistan. Olper milk and cream come under the same umbrella of brand name Olper. Harvesting Strategy should use and Engro should milk its cow for the Omore and Tarang in order to increase their current market share.

Question Marks At the end of year 2010, Engro food has launched its first juice brand name Olfrute.Olfrute has relatively low market share but the growth potential is quite high. Olfrute is facing atough competitor with a strong brand name of Nestle. The initial promotion and the sales figures depict that it can be a successful product but still the results of this brand has yet to come. In this particular period Engro food has also launched flavored milk with brand name Owsum. Though

30

STRATEGIC MANAGEMENT ANALYSIS OF the experiences of haleeb in the case of Candia was bitter, now just see what Engro will do in order to make this brand a success.

Dog Engro has lauched a brand with the name Olwell with high calcium and low fat. This has get a great failure and the market share of Olwell as compared to Nesvita is quite low beside this its sales are started decreasing as compared to the previous year figures. Divesting Strategy can be used as from the past two years the market share has been started losing and also the there is slow market growth for this product.

31

STRATEGIC MANAGEMENT ANALYSIS OF

ENGRO FOOD’S BLUE OCEAN STRATEGY Engro’s drink products are already available at grocery stores, many convenience stores and also several drug stores as well, so the customers do not have to exert energy to find these products. In addition to fun drinks and dairy products however, Engro can also offer healthier options for kids such as kid’s essentials and carnation instant breakfast. The business idea should be children’s version of instant breakfast. Other competitors such as Nestle already produce carnation instant breakfast, geared towards adult health needs and not for children. Since the current formula for children instant breakfast is in the market as well by other foreign companies but most buyers could not afford to buy because they are very expensive. It would be very important for the Engro to make it possible in the market for the children version to remain cheap and affordable for most buyers’ budgets. Since the carnation instant breakfast for children is already catering the market, so the new product of Engro foods must be able to also meet cost targets. Here is a free region available for Engro to imply blue ocean strategy, so they can provide a better quality children food at a low cost. There are certainly options available in the market, but none of them offers real meal replacer. So the whole new market is open for the Engro foods to reach out those parents of junky eaters, and particularly to a segment of children who refuse the tasty and healthy meal.

32

STRATEGIC MANAGEMENT ANALYSIS OF

Achievements Olper’s achieve a lot with in short span of time. In December 2006: Engro Foods Limited has cross Rs 1 billion in sales for its Olper's Milk, launched in March this year. The Rs 1 billion rupee milestone was achieved at the end of October, in less than 8 months of the launch of the new pack milk brand and by the end of 2007; the sales figure is expected to reach Rs 1.4 billion. In a statement issued here, the marketing director of Engro Foods Ltd, Ali Akbar said, "We believe we have set an all time record as far as sales of a new milk brand are concerned and in a very short time Olper's has opened in over 50 towns in Pakistan, becoming a national brand." "This is all the more remarkable since we entered a market with very strong existing players and our success has come primarily because the people of Pakistan clearly felt Olper's to be a higher quality product," Olper’s Milk is produced at the company's modern production facility in Sukkur and goes through several stringent quality checks starting from the milk collection points, before it reaches the consumers. He said, the demand for Olper's has come not only from first time users of packaged milk but also from users of other brands who have shifted to the Olper's brand owing to its taste and quality proposition and its convenient availability all over the country. He further added that the company is now in the process of setting up another production plant in the central Punjab region. Engro Foods had also launched Olper's Cream in last September and is now poised to further expand.

Engro Foods Expansion on a Bigger Scale. Engro Foods Limited who had recently set up Dairy industry in Central Sindh (UHT Milk plant) by investing about Rs one billion, further plans to set up a similar set up in Central Punjab and also emerging as Food Giant firstly on National Level and secondly as world class International Food Giant by adding a large number of other food products through investment of $200 million plus, probably envying to emerge as an international food company on similar lines as NESTLE did. The company plans exporting its products to central Asia and Middle East.

Dairy science and Technology in Pakistan. Development and implementation of milk standards is also essential to define milk price based on quality. Dairy science and technology education universities also need to support industry in dairy breeding, nutrition, industrial management and product quality. Presently no under-graduate program is available in the country to support this sector. Presently, Pakistan has only a few scholars in prime principles of dairy science including animal breeding and genetics, dairy nutrition, dairy management, and dairy technology to support and develop dairy industry.

33

STRATEGIC MANAGEMENT ANALYSIS OF

It is essential because the veterinarian could only provide support to the animal industry developed on the animal production science principles. Animal or dairy production science is altogether a different subject than that of veterinary education. In conclusion, development of dairy cooperates, restructuring of extension; research and educational institutions could perk up rural oriented dairy sector to market oriented dairy industry that guaranteed food security social and economic growth in Pakistan.

SUGGESTIONS AND RECOMMENDATIONS Following are the suggestions and recommendations for EFL. 

The co-ordination between different departments of EFL should be improved it will lessen the bureaucratic cost and increase the efficiency of the company.



The activities like customer satisfaction day should be performed on regular basis so the company should know the feedback and satisfaction level of customers regarding the product and the image of the company.



The shopkeeper complains that EFL is not providing replacement for the expired products, EFL should provide proper replacement to the shopkeeper to enhance the image of the company, and create better working relations with such an important stakeholders.



EFL has shifted to branding concept but it really has not adopted it fully, for smoother working of the different brands, the sales teams should merged with respective brand management.



There is no check on the performance of the distributor, and this has led to huge problems in the delivery of many products in some areas of the city.

34

STRATEGIC MANAGEMENT ANALYSIS OF 

They should also start to manufacture powder milk in order to meet the domestic demand and so that it can be helpful in saving the foreign exchange that is expensed in importing the powder milk from foreign countries.



The company should explore the market potential in a way, so that it can utilize its full capacity in order to gain economies of scale in the production.



At the moment the company is using focus marketing approach that only that segment is approached which highly attractive for the company but it should also develop the marketing program that distinguishes the characteristics of existing available substitutes to their highly quality & hygiene oriented product.



The company should also develop an integrated awareness plan in order to aware the people about the quality of the UHT milk as compared to other pasteurized or loose/fresh milk.

35

STRATEGIC MANAGEMENT ANALYSIS OF

CONCLUSION:

ENGRO FOODS LIMITED is the subsidiary of ENGRO group. Their brands are one of the top brands in Pakistan in the milk sector. Their products OLPERSMILK ,OLPERS CREAM,AWSUM FRUIT MILK, OLWELL,TARANG TEA and OMORE ICE CREAM purchased heavily by customers. This is due to marketing Strategies, Promotion, price and quality of their products. Above mentioned are the Marketing Strategies of their products due to which there Revenues increases day by day. They provide the customers what they want; their distribution channels are vast and their prices are nominal. These are Reasons for the success of their brands.

36

STRATEGIC MANAGEMENT ANALYSIS OF

REFERENCES 1. Strategic Management concept and cases by FRED R DAVID 12th edition. 2. Marketing Management by Kotler 11th Edition. 3. www.maxi-pedia.com 4. www.olpers.com.pk 5. www.engrofood.com.pk 6. www.engrochemicals.com 7. www.Engro\web search\marketing-sales.aspx.htm 8. www.Engro\web search\about-us.aspx.htm 9. www.google.com 10. www.wikipedia.com

************************* ******************

37